The “no tax on overtime” deduction is retroactively effective on January 1, 2025. So, if you qualify, you can claim the deduction for the first time on your federal income tax return for the 2025 tax year (which you'll file in 2026).
For tax years 2025 through 2028, individuals who receive qualified overtime compensation may deduct the pay that exceeds their regular rate of pay (generally, the “half” portion of “time-and-a-half” compensation) that is required by the Fair Labor Standards Act and reported on a Form W-2, Form 1099, or other specified ...
The "No Tax on Overtime" provision (part of the 2025 OBBB Act) works as a federal income tax deduction, allowing eligible employees to reduce taxable income by the premium portion (the extra half) of their time-and-a-half pay, up to $12,500 ($25,000 joint), for tax years 2025-2028, phasing out at higher incomes but still subject to payroll taxes.
No tax on overtime pay
OBBBA allows eligible workers to deduct "qualified overtime pay" on federal returns. The break is capped at $12,500 for single filers or $25,000 for married couples filing jointly. This tax break phases out for higher earners. This is a tax break only for overtime pay, not all wages.
Tax changes for 2025, largely driven by the "One Big Beautiful Bill" (OBBBA) Act, introduce significant deductions for seniors, tips, overtime, and auto loan interest, expand the Child Tax Credit, and raise the SALT deduction cap to $40,000, while making several 2017 Tax Cuts and Jobs Act provisions permanent, including the seven tax brackets. Key changes include a $2,200 Child Tax Credit, a $6,000 senior deduction, deductions for qualified tips and overtime, and a permanent standard deduction increase.
Some of the major tax changes effective from April 1, 2025, are revised tax slabs, rebate of up to Rs. 60,000, revised ITRU deadlines, calculation of partner's remuneration allowable as a deduction and revised TDS/TCS threshold limits. What is the Rebate available under section 87A?
No Tax on Overtime retroactively took effect on January 1, 2025, and remains in effect through December 31, 2028. Congress could decide to extend it.
Overtime Pay Tax Relief Act of 2025
This bill allows a tax deduction for overtime compensation received by an individual, subject to income limitations, through 2029. The amount of the deduction may not exceed 20% of the individual's regular wages from the same employer.
If the individual tax cuts expire, taxpayers in all income groups would face higher and more complicated taxes. Machinery and equipment expensing is a key provision that, if allowed to expire, would especially harm capital-intensive industries like manufacturing.
“No Tax on Tips” refers to a federal income tax deduction for up to $25,000 of certain tips received during the year. The deduction is available for the 2025 through 2028 tax years, and it's subject to various limitations and other rules. Discover more about federal income tax deductions.
On July 4, 2025, Congress enacted US Public Law 119-21, also known as the One Big Beautiful Bill Act. In that law, there is a provision called “No Tax on Overtime.”
The "No Tax on Overtime" provision (part of the 2025 OBBB Act) works as a federal income tax deduction, allowing eligible employees to reduce taxable income by the premium portion (the extra half) of their time-and-a-half pay, up to $12,500 ($25,000 joint), for tax years 2025-2028, phasing out at higher incomes but still subject to payroll taxes.
Under the Biden administration, DOL issued a new regulation on overtime pay for these salaried workers, which would have expanded the right to overtime pay for 4.3 million workers, giving the right to overtime pay protections to most workers making under roughly $58,656 per year.
Did the no tax on overtime pass? Yes. The no tax on overtime bill was included in the One Big Beautiful Bill that President Trump signed into law in July 2025. This new law creates a first-of-its-kind tax exemption for certain overtime pay, effective beginning in tax year 2025.
Here's a summary of key changes for the 2025 tax year. The seven federal tax brackets (10%, 12%, 22%, 24%, 32%, 35%, 37%) are now permanent. Standard deductions increased, plus a new “bonus” deduction for older adults. Child tax credit increased to $2,200 per qualifying child.
To avoid the 22% tax bracket (or any higher bracket), focus on reducing your taxable income through strategies like maxing out 401(k)s and HSAs, deferring bonuses, tax-loss harvesting, smart charitable giving, and strategic asset location, understanding that higher rates only apply to income within that bracket, not your entire income.
In the March 2025 Federal Budget, two new income tax cuts were announced to commence from 1 July 2026 and 1 July 2027. These cuts have now been legislated. The changes announced are: From 1 July 2026, the 16% tax rate, which applies to taxable income between $18,201 and $45,000, would be reduced to 15%
The IRS and Treasury have now provided guidance in the form of two notices – Notice 2025-62 providing penalty relief for employers and payors who do not report qualified tips or qualified overtime on information returns for 2025, and Notice 2025-69 providing guidance for taxpayers who receive overtime and tips on how ...
The following TCJA provisions are set to expire after 2025. Near doubling of the standard deduction, repeal of personal exemptions, and lower value of several itemized deductions, including those for: State and local taxes (SALT) Mortgage interest.
April 10, 2025, the House adopted the Senate's amended version of the budget resolution, which allows $5.3 trillion in deficit-financed tax cuts (the combination of $3.8 trillion of tax cuts assumed to be “costless” under a current policy baseline plus $1.5 trillion in additional deficits permitted), deficit increases ...